Reality of Consent/Meeting of Minds

Question 1

Contracts induced by misrepresentation/fraud/mistake/duress/undue influence are generally considered to be voidable, meaning…

Answer 1

The person whose consent was not real has the power to rescind (cancel) the contract and is entitled to the return of anything she gave to the other party, but by same token she must offer to return anything she received from other party

Question 2

To rescind a contract based on misrepresentation/fraud/mistake/duress/undue influence, the person whose consent was not real must…

Answer 2

Act promptly and unequivocally
Object promptly upon learning the facts that give her the right to rescind
Clearly express her intent to cancel contract
Avoid any behavior that would suggest that she affirms/ratifies contract

Question 3

Ratification of voidable contract

Answer 3

A person who had the right to rescind has elected not to do so: ratification ends right to rescind, so avoid unreasonable delay in notifying other party of her rescission, bc unreasonable delay communicates she ratifies contract, also avoid any conduct sending a mixed message

Question 4

Meaning of misrepresentation

Answer 4

An assertion that is not in accord with the truth: if a person enters a contract bc of her justifiable reliance on a misrepresentation about some important fact, contract is voidable (even if person making the misrepresentation believes in good faith that what she says is true)

Question 5

Misrepresentation can be (2)

Answer 5

1. Innocent: not intentionally deceptive
2. Fraudulent: made with knowledge of falsity and intent to deceive

Question 6

Meaning of fraud

Answer 6

Type of misrepresentation that is committed knowingly(a person making a misrepresentation is considered to do so knowingly, if she knew her statement was false OR if she knew she didn’t have basis for making the statement OR is she made the statement without being confident that it was true), with intent to deceive (defendant knowingly made a misstatement of fact to a person who was likely to rely on it)

Question 7

Tort liability of a person who commits fraud

Answer 7

May be liable for damages, possibly including punitive damages, for the tort of deceit

Question 8

What is scienter?

Answer 8

Legal term for knowledge of falsity, which distinguishes fraud from innocent misrepresentation

Question 9

A drastic remedy, such as recession should only be used when…

Answer 9

A person has been seriously misled about a fact important to the contract by someone she had the right to rely on

Question 10

A person seeking to rescind a contract on the ground of innocent/fraudulent misrepresentation must be able to establish EACH of following statements:

Answer 10

1. An untrue assertion of fact was made
2. The fact asserted was material or the assertion was fraudulent
3. The complaining party entered the contract bc of her reliance on the assertion
4. The reliance of complaining party was reasonable
   + Proof that untrue assertion was made with scienter (for establishing fraud)

Question 11

In tort actions in which plaintiff is seeking to recover damages for deceit, plaintiff has to establish injury, meaning…

Answer 11

She has to prove she suffered economic injury bc of her reliance on fraudulent assertion

Question 12

To have misrepresentation/fraud, one of the parties must have made an untrue assertion of fact/engaged in conduct equivalent of an untrue assertion of fact, and fact asserted must be

Answer 12

Past/existing fact, distinguished from opinion, promise, prediction about some future happening

Question 13

Concealment can be the equivalent of an assertion (basis for a claim of misrepresentation/fraud) if…

Answer 13

Concealment of a fact through some active conduct intended to prevent the other party from discovering the fact

Question 13

Concealment can be the equivalent of an assertion (basis for a claim of misrepresentation/fraud) if…

Answer 13

Concealment of a fact through some active conduct intended to prevent the other party from discovering the fact

Question 14

Nondisclosure can also be the equivalent of an assertion of fact, although differs from concealment, since…

Answer 14

Concealment involves active hiding of a fact, whereas nondisclosure is the failure to volunteer info

Question 15

In case of innocent misrepresentation, person seeking to rescind contract must establish that the fact asserted was material, meaning…

Answer 15

It is likely to play a significant role in inducing a reasonable person to enter the contract/if person asserting the fact knows the other party is likely to rely on the fact

Question 16

What is reliance?

Answer 16

A person pursues some course of action bc of her faith in an assertion made to her: there is a casual connection between the assertion and the complaining party’s decision to enter the contract

Question 17

What is justifiable reliance?

Answer 17

Courts take into account the reasonableness of the behavior of complaining party by requiring her reliance to be justifiable: a person doesn’t act justifiably if she relies on an assertion false/not to be taken seriously

Question 18

Problem of justifiable reliance

Answer 18

Determining extent to which relying party is responsible for investigating the accuracy of the statement on which she relies (class al contract law: person who doesn’t attempt to discover readily discoverable facts was not justified in relying on other party’s statements about them)

Question 19

Meaning of mistake

Answer 19

Belief about a fact that is not in accord with the truth: mistake must relate to facts, as they exist at the time the contract is created, complaining party enters contract bc of a belief that is at variance with the actual facts

Question 20

What is mutual mistake in drafting writing and its remedy?

Answer 20

Mistake made by both parties, which takes the form of erroneous expression of an agreement, caused by a clerical error in drafting/typing contract. Remedy is reformation of writing (modification of written instrument to express agreement)

Question 21

Requirement of mutual mistake

Answer 21

Mutual mistake exists when both parties to contract have erroneous assumption about same fact, and resulting contract can be avoided if 3 elements are present:
1. Mistake relates to a basic assumption on which contract was made
2. Mistake has a material effect on the agreed-upon exchange
3. Party adversely affected by mistake doesn’t bear risk of mistake

Question 22

Mistake about basic assumption

Answer 22

Adversely affected party doesn’t have the right to avoid contract unless mistake concerns a basic assumption on which contract was based (assumption about identity, existence, quality, quantity of the subject matter of contract), an assumption may be so basic, parties take it for granted

Question 23

Material effect on agreed-upon exchange

Answer 23

Complaining person must show the imbalance caused by mistake is so severe that it would be unfair for the law to require her to perform the contract (+chance if shown that other party received an unbargained-for advantage)

Question 24

The person harmed by the mistake cannot avoid contract if she is considered to bear the risk of mistake bc

Answer 24

Courts have the power to allocate risk of a mistake to adversely affected person whenever it is reasonable

Question 25

Adversely affected person could bear risk of mistake when…

Answer 25

Expressly contracted to do so
She contracts with conscious awareness that she ignorant/has limited info about fact

Question 25

Adversely affected person could bear risk of mistake when…

Answer 25

Expressly contracted to do so
She contracts with conscious awareness that she ignorant/has limited info about fact

Question 26

Unilateral mistake exists when…

Answer 26

Only 1 party makes a mistake about a basic assumption on which she made the contract

Question 27

Requirements to avoid contracts for unilateral mistake mistake

Answer 27

Prove elements necessary for unilateral mistake
+ Show 1 of the following
1. Non-mistaken party caused/had reason to know of the mistake (non mistaken party could’ve prevented loss by acting in good faith and informing person in error that she made a mistake)
2. It would be unconscionable to enforce contract (mistaken party has to convince court that consequences of mistake would make contract oppressive/harsh if enforced)

Question 28

Meaning of duress

Answer 28

Wrongful coercion that induces a person to enter/modify a contract

Question 29

Types of duress

Answer 29

1. Physical duress: physical compulsion to enter a contract (rare, but when it occurs, court considers it void)
2. Threat of physical, emotional, economic harm (contract is voidable at the option of victimised person)

Question 30

Requirements to avoid contracts for duress

Answer 30

Establish both:
1. Contract was induced by an improper threat
2. Victim had no reasonable alternative but to enter into the contract

Question 31

Economic duress/Business compulsion

Answer 31

Situation in which 1 person induces the formation/modification of a contract by threatening another person’s economic interests
Common coercive strategies:
Threaten breach of contract unless other party agrees to modify its terms
Offering disproportionately small amount of money in settlement of debt and refusing to pay more

Question 32

Meaning of undue influence

Answer 32

Involves wrongful pressure exerted on a person through persuasion during bargaining process: gives relief to persons unfairly persuaded to enter int a contract while in a position of weakness that makes them vulnerable to being preyed upon by those they trust/fear

Question 33

All contracts are based on persuasion (no precise line dividing permissible-impermissible persuasion), but undue influence cases normally involve both:

Answer 33

1. Relationship between parties is either one of trust and confidence or one in which person exercising the persuasion dominates the person being persuaded
2. Persuasion is unfair

Question 34

Fraud requires proof of 5 elements

Answer 34

1. False representation made by defendant
2. Knowledge by defendant that representation was false when made
3. Intent to induce plaintiff to act/refrain from acting
4. Justifiable reliance by plaintiff
5. Damage to plaintiff

Question 35

A person claiming she was fraudulently induced to enter a contract has an election of remedies:

Answer 35

1. Promptly after discovering fraud she may rescind contract
2. She may affirm contract and sue for damages resulting from fraud